What Blue States Can Teach Red States About Good Credit

It's not just political philosophies that define the differences between Republican-leaning "red states" and Democrat-leaning "blue states" -- and some of those differences may surprise you.

Blue states, for example, have higher average gas prices -- but because red state citizens own less-efficient vehicles and drive them more, high gas prices are hurting them to a greater degree. The states with the most teen pregnancies are mostly among the conservative red, whereas those with the least are mostly blue. And when it comes to credit scores, blue states are where the smart money is.

That's what the folks at CreditKarma.com figured out after examining credit data from TransUnion, one of the three major credit bureaus. Comparing credit scores state-by-state, they found that the average score in blue states is 667 -- 16 points higher than the 651 average in red states.

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Why the differences? "Traditionally, Southern states have lower average FICO scores than any other region of the country," says John Ulzheimer, president of consumer education at SmartCredit.com and a Georgia resident. "It's not because we tend to vote Republican, it's because we're in [more] credit card debt and have more negative information on our reports than other states."

"If I have $10,000 in credit card debt, but $100,000 in limits, I'm 10% utilized. If you have $5,000 in credit card debt but a $10,000 limit, you're 50% utilized and will likely have a lower score." Blue state residents are more likely to have more credit cards that are unused, or higher credit limits overall.

What 16 Points Means to Your Budget

Still, it's only a 16 point difference -- how big a deal could that be? Well, it may not sound like a lot, but it translates into substantial additional costs to those consumers every year, says Ken Lin, CreditKarma founder and CEO.

"On the credit spectrum, it could be a few hundred dollars per consumer when you average it all," he says -- money you lose due to the higher interest rates you're charged when you're classified by lenders as a bigger risk.

Want to put that money back in your pocket? Here are two lessons for those of us in red states (or with poor credit no matter where we live) to take from our blue state neighbors:

• Don't fear credit. Lin notes that those in blue states are more likely to leverage financial services tools, and you have to use credit to have credit. Otherwise, you're likely to have what the credit bureaus would refer to as a "thin file" -- no track record to show you're responsible. To build a history, you need a credit card. Look for one with no annual fee and a low interest rate. Then charge a little bit each month and pay it off every billing cycle, on time.

• Understand the impact. As I noted, Lin says this 16-point difference could equate to a hundreds of dollars a year. But that really depends on where your score falls on the spectrum. If your credit score is, say, 570, 16 points won't make much difference one way or the other because it isn't likely to push you into a better score range, and you're already close to rock bottom. If your score is 700 or above, the same applies, but for the opposite reason: You're likely getting great terms, and a mere 16 points in either direction won't do much to change that. It's the group whose credit scores fall between 600 and 700 that is most affected by those apparently small differences.